A time to shine

Camilo Rodriguez, head of international credit and surety at Axis Capital, considers the latest developments and challenges in the credit and surety reinsurance sector.

What have been the biggest developments in 2023 within credit and surety reinsurance?

Two outstanding developments we are following closely are the efforts to control inflation by central banks around the world and the effects of the ongoing Russia-Ukraine war – both of which continue to profoundly affect geopolitics, wider economic and fiscal policy, and credit and surety.

With Covid, the impact can be classed not as what happened but rather what didn’t. In the beginning, when cases were beginning to rise and stories of the pandemic swept the media, we were preparing for a doomsday scenario on par with the global financial crisis. However, mainly because of government intervention, losses did not fully materialise. As it relates to the Russia-Ukraine war, the economic crisis management by various governments has been strong, and the actions of central banks are still combating the worst excesses of inflation.

From a credit and surety angle, we are seeing signs that the market is picking up. This is largely due to major investment in infrastructure from governments, which creates activity for surety lines. From the credit side, inflation translates into higher credit limits that the different markets need to cover.

What are the biggest challenges within this space?

There are always challenges, and there is always risk. That is what makes our sector so interesting.

For example, a significant aspect of the ongoing macroeconomic challenges we face is diagnosing political tension correctly. Looking at the Russia-Ukraine war, what some originally thought could be a short conflict has morphed into something longer-term.

In a wider sense, we must also concern ourselves with the trajectory of economic recovery. We are seeing encouraging signs concerning inflation, but the pressure from increased interest rates can affect financial performance within companies that could stress the credit and surety market. We also continue to see more insolvencies, but this has yet to fully translate into losses.

What opportunities do you foresee for growth in this space?

Credit and surety benefits from uncertainty, so it is important to see these somewhat ambiguous times through the lens of opportunity.

In historical terms, previous generations have taught us that an economic crisis has always been followed by an impact on credit. But we appear, so far at least, to have skipped a cycle, which is a unique opportunity. Governments are getting much better and quicker at economic crisis management, as displayed during the Covid pandemic and the recent banking and inflation crises. Further, credit insurers are becoming far better with risk selection as well.

A more specific opportunity exists within the credit space, particularly with European banks and capital relief transactions. The strict regulations assess how much capital banks can have at risk. Many are looking for an opportunity to assume more risk, and we anticipate seeing more coming to the table over the next few months. We are in an era in which credit and surety underwriters can distinguish and elevate themselves – a time to shine by making the right risk selections during a period of relentless uncertainty.